ch09

CHAPTER 9
Swaps and Interest Rate Derivatives

EASY (definitional)

9.1 A(n) __________ swap is an agreement between two parties to exchange interest payments for a specific maturity in an agreed upon notional amount.
a) interest rate
b) currency
c) bond
d) currency bond

Ans: a
Section: Interest rate swaps
Level: Easy

9.2 In a _______ swap, two parties exchange floating interest payments based on different reference rates.
a) basis
b) coupon
c) notional
d) forward rate

Ans: a
Section: Interest rate swaps
Level: Easy

9.3 The theoretical principal underlying the swap is termed the
a) basis amount
b) swap differential
c) notional principal
d) arbitrage principal

Ans: c
Section: Interest rate swaps
Level: Easy

9.4 In a _____ swap, one party pays a fixed rate calculated at the time off trade as a spread to a particular Treasury bond, and the other sides pays a floating rate.
a) currency
b) interest rate
c) coupon
d) basis

Ans: c
Section: Interest rate swaps
Level: Easy

9.5 In a currency swap, the effective interest rate on the money raised is known as the
a) notional principal
b) all-in cost
c) right of offset
d) yield to call

Ans: b
Section: Currency swaps
Level: Easy

9.6 Swaps provide a real economic benefit to the counterparties only if a barrier exists to prevent ______ from functioning fully.
a) hedging
b) factoring
c) arbitrage
d) forfeiting

Ans: c
Section: Economic advantages of swaps
Level: Easy

9.7 A(n) ________ is a cash-settled, over-the-counter forward contract that allows a company to fix an interest rate to be applied to a specified future interest period on a notional principal amount.
a) interest rate currency swap
b) dual currency bond
c) exchange of principal
d) forward rate agreement

Ans: d
Section: Forward rate agreement
Level: Easy

9.8 A(n) __________ is a contract that fixes an interest rate today on a future loan or deposit
a) inverse floater
b) step-up
c)